4.1 Individuals, firms, markets and market failure DEFS

• What does a positive statement include?

  No value judgement, testable against facts
• What characterizes a normative statement?

  Includes value judgement, not testable
• What is a value judgement?

  A view on moral right or wrong
• What is economic activity?

  Production, consumption, exchange, distribution
• What are economic resources also known as?

  Factors of production
• What are the four factors of production?

  Land, labour, capital, enterprise
• What does 'land' refer to in economics?

  Natural resources available on Earth
• What is capital in economic terms?

  Human-made resources like tools and machines
• What does 'labour' represent in economics?

  Human contribution to production
• Who is an entrepreneur?

  Person organizing economic resources
• What does enterprise involve?

  Making decisions and taking risks
• What is a scarce resource?

  Limited supply of a production factor
• What is scarcity in economics?

  Limited resources versus unlimited wants
• What does opportunity cost refer to?

  Next best alternative foregone
• What does a production possibility diagram show?

  Quantities of two goods produced
• What is the production possibility boundary (PPB)?

  Shows quantities of two goods produced
• What is resource allocation?

  Using factors of production for goods
• What is rational economic decision making?

  Selecting best option to maximize welfare
• What is utility in economics?

  Satisfaction from consuming goods
• What does marginal utility refer to?

  Change in total utility from consumption
• What is the hypothesis of diminishing marginal utility?

  Additional satisfaction declines with consumption
• What is imperfect information?

  Not having all needed information for decisions
• What is asymmetric information?

  One party has more information than another
• What is behavioral economics?

  Psychology's influence on decision making
• What does bounded rationality mean?

  Human limitations affect decision making
• What is bounded self-control?

  Insufficient willpower to resist temptations
• What are rules of thumb?

  Mental shortcuts for quicker decisions
• What is anchoring in decision making?

  Relying too heavily on one piece of information
• What is availability bias?

  Decisions influenced by recent events
• What are social norms?

  Behaviors accepted by society currently
• What is choice architecture?

  Framework in which choices are presented
• What is a nudge?

  Encouragement for a decision without coercion
• What is a default choice?

  Pre-selected option that can be changed
• What is restricted choice?

  Limited number of choices available
• What is mandated choice?

  Decision required by law
• What are increasing returns to scale?

  Greater output increase from input increase
• What are constant returns to scale?

  Same output increase from input increase
• What are decreasing returns to scale?

  Smaller output increase from input increase
• What are fixed costs?

  Costs that do not change with output
• What are variable costs?

  Costs that change with output